Belgium (Brussels Morning Newspaper) The European Parliament faces a crossroads: should it hand over control of the EU’s lawsuit system to an obscure but enormous industry known as third party litigation funding (TPLF)? The stakes are huge, both financially and for the integrity of the European judicial system.
Many people have never even heard of TPLF, which is by design. Unbeknownst to the public, judges, and often the parties to the lawsuits themselves, these financial institutions back litigation efforts in return for a portion of any award or settlement. Litigation funders structure their agreements, which are kept secret, to allow them greater control over strategic decisions in the case, including making sure they are paid first. Funders can back out of the case if it no longer seems lucrative enough.
TPLF is a fast-growing, multibillion-Euro industry in Europe, yet it is mostly unregulated, unlike any other financial institutions. Funders are also not bound by any of the standards that legal professionals must abide by, such as acting in the best interests of the claimants or paying the legal costs of the case should they lose. Instead, because funders must be paid first from any award or settlement, claimants can be left with little to nothing.
Seeking to maximize profits and minimize risk is a reasonable strategy for a financial investor. But the legal system is not a financial market. It is not an arbitrage play for hedge funds. It exists to deliver justice for victims and consumers, not fat returns for lawyers and funders.
Yet because these lawsuits can be lucrative, unregulated third-party litigation funding has taken root worldwide.
In Australia, for instance, almost half of the federal class actions brought between 2014 and 2020 were funded by TPLF. The Australian Parliament found that third-party funded litigation can “generate investment returns unheard of in any other jurisdiction — in some cases of more than 500 percent.” They said claimants were the “biggest losers” in funded class actions.
That’s the future of European justice if outside funders are not reined in. The TPLF industry grew by 40% in the EU between 2009 and 2019. According to the European Parliamentary Research Service, it is projected to grow even faster this decade, potentially doubling in size over the next five years.
In the EU, the public wants protection against the worst abuses of this industry. In a recent survey of 5,000 European consumers, 83% said they want regulatory safeguards.
Тhankfully, the EU can now show the rest of the world how to handle this problematic industry. The European Parliament is considering several safeguards to ensure consumers have access to justice and pull the funding industry out of the shadows. These common-sense reforms include ensuring funders have the capital to see a case through to the end and that they will cover the costs of the case should their side lose. Another key safeguard would prohibit funders from controlling the course of litigation and be transparent about any agreements with the lawyers that could present a conflict of interest.
One critical safeguard before the Parliament would require funding agreements to be reviewed and disclosed to all parties in a lawsuit. Disclosure would bring much-needed transparency to an industry that actively does not want anyone to know what they are doing.
Protecting claimants and the integrity of the legal system from this secretive industry must be a priority for the Parliament. Letting litigation funders control lawsuits, dodge paying for costs of the lawsuits they lose, and avoid accountability for conflicts of interest puts claimants last and lawyers and funders first.
This is a once-in-a-lifetime opportunity for the EU to take control of the situation before litigation funding runs rampant. They should take it.